I have purchased bulk quantity of material from the supplier they provide some items at free of cost like for just one rupees. Some times the FOC goods are included in the same bill or some times in a separate bill. Whether I can issue the FOC goods to some other customer at Rs. 1. Please clarify.
09 July 2024
The treatment of Free of Cost (FOC) goods in transactions, especially for GST (Goods and Services Tax) purposes in India, depends on how they are accounted for and invoiced. Here’s a clarification on your situation:
### 1. FOC Goods Included in the Same Bill:
- **Scenario:** If the supplier provides FOC goods along with other goods on the same invoice, where the FOC items are listed at a nominal value (like Rs. 1), you cannot issue these FOC goods to another customer for Rs. 1.
- **Reason:** According to GST rules, when goods are supplied free of cost (or for nominal consideration like Rs. 1), GST is still applicable based on the open market value of the goods. The open market value is determined as per Section 15 of the CGST Act, 2017, which generally means the value at which such or similar goods are normally sold or bought at the same time and at the same place.
- **Implication:** If you issue FOC goods to another customer at Rs. 1, you would be undervaluing the supply for GST purposes. This could lead to compliance issues and potential penalties if detected during GST audits.
### 2. FOC Goods Included in a Separate Bill:
- **Scenario:** Sometimes, suppliers may issue a separate bill for FOC goods, even if they are valued at a nominal amount like Rs. 1.
- **Treatment:** In such cases, while you received these goods at a nominal value, issuing them to another customer at a higher price (like Rs. 1) might still be questionable from a GST perspective unless you can justify the open market value or the commercial rationale behind the pricing.
- **Recommendation:** To avoid GST complications, it’s generally advisable not to resell FOC goods unless you have proper documentation to support the valuation or commercial nature of the transaction.
### GST Implications:
- **Input Tax Credit (ITC):** If you have claimed input tax credit on the purchase of goods, including FOC items, you need to ensure compliance with GST rules regarding their usage or disposal.
- **Documentation:** Maintain clear records of how FOC goods are received, accounted for, and if disposed of in any manner. This helps in demonstrating compliance during GST audits.
### Conclusion:
Given these considerations, it’s crucial to follow GST rules diligently when handling FOC goods received from suppliers. Issuing FOC goods to another customer at Rs. 1 without proper valuation or commercial justification can lead to GST compliance issues. If you have specific scenarios or transactions involving FOC goods, consulting with a GST professional or a chartered accountant would provide tailored advice based on your business circumstances and the latest GST regulations.
CAclubindia
